The future by default?

Attention is focused on Greece right now, as efforts to prevent the country from collapsing into bankruptcy rise to a crescendo. Such a bankruptcy might bring about a cascade of additional implosions, if investors shun sovereign debt from Portugal, Spain, and Ireland. Iceland is already in bankruptcy, the result of wheeling and dealing by two Icelandic banks. The United States is running unprecedented deficits, which are only partly a result of the economic crisis. The only country which seems to have its economic house in order is China, which has been financing the American economy for nearly 10 years.

Why is it so difficult for countries to live within their means? How can governments expect to borrow money endlessly, without ever having to pay back the loans that keep them afloat? Is it fear of losing power that drives officials to promise what cannot be afforded? The consequences of continuing the path that we are on are growing steadily more dire, yet no one seems to be suggesting that we change our course. World trade stands in jeopardy, because who will sell goods to a bankrupt country?

The people of Greece have been living an illusion, fostered by governments which were willing to extend every possible luxury to stay in power. Civil service workers could not be fired, most workers received 14 months of pay every year, and retirement benefits exceeded the income made while working. But Greece is only the tip of the iceberg. Nearly every developed country coddles their people, sheltering them from the true costs of living. Budget deficits have become standard operating procedure around the world, not just in the U.S.

Even amidst widespread unemployment, some people are gaining more wealth. Are we all being hoodwinked so that a few can continue to rake in the dough? It seems like it. Consumer spending has been the engine that keeps the world economy growing, yet consumers have been borrowing to spend. If consumption were to decline to sustainable levels, who would suffer the most? The people who have to put up with a 10-year-old car, or the car companies? If we were forced to buy shoes that could be repaired, instead of spending nearly a week’s wages on disposable shoes, wouldn’t we be better off? Probably, but the industrialists who have been getting rich selling us shoes over and over again would not be.

Most people have not seen their income increase for nearly ten years, yet the wealthiest people have been getting wealthier the whole time. Consumer debt is at unprecedented levels, while income growth is ground to a halt. If taxes are raised enough to pay the costs of government, consumers would be unable to consume. Instead of raising taxes, governments have resorted to borrowing to meet their costs, trying to keep consumption going. But it cannot go on. Consumption is going to decline, tax revenues will follow suit, and then governments will be forced to default on their debt.

We are all headed for the poorhouse, because some people have been getting rich while the rest of us are just scraping by. Wages have not even come close to growing in proportion to productivity. Instead of paying shareholders cash bonuses, corporations should be paying their workers wages that reflect the value of the work that they do. Then consumers would have the money to pay higher taxes and still be able to buy new goods. But greed has blinded the boards of corporations, and the wealth that the workers create goes to people who do nothing to help create it.

American workers are so productive that they could be paid full-time wages for working half days, allowing full employment. But that would mean that the wealthy would not get wealthier as fast. So, the workers are earning what they did when they were much less productive, and unemployment is widespread. Workers who cannot work don’t buy things that they don’t desperately need, which means that consumption declines, and tax revenues diminish.

We could have avoided all of this pain, but doing so would have cut into the profits that a small number of individuals have enjoyed. As a result, all of us, wealthy and poor, are going to suffer. Maybe we can get it right next time. If there is a next time.